Next Posts Annual Profit Growth Ahead of Analysts’ Expectations

By Sarah Shannon -
Mar 21, 2013

Next Plc (NXT), the U.K.’s second-largest
clothing retailer, reported annual profit growth that topped
expectations while adding that the start of the new fiscal year
has been “quiet” as cold weather delays spring purchases and
economic woes weigh on spending.

Underlying pretax profit rose 9 percent to 621.6 million
pounds ($940 million) in the year ended in January, Next said in
a statement today, compared with the average estimate of 620.3
million pounds from 20 analysts surveyed by Bloomberg. Sales in
the first few weeks of the year have been at the bottom of the
Leicester, England-based retailer’s target range of between 1
percent and 4 percent growth, it added.

Next Chief Executive Officer Simon Wolfson said growth will
come from store extensions and online as sales at existing
outlets decline amid a “flatlining” economy. The U.K.
Chancellor of the Exchequer downgraded official growth forecasts
for this year to 0.6 percent in yesterday’ budget statement.

The retailer, with more than 500 stores across the U.K. and
Ireland, has been opening standalone outlets selling homewares,
expanding its online business internationally and buying back
stock. That has helped its shares to outperform both the
benchmark U.K. FTSE 100 index and larger rival Marks & Spencer
in the year to date.

’Taking Share’

“They are doing very well, they bet and managed the sales
of full-price and discount and they are probably taking share
from M&S and some of the others from having a better online
offer and having better product,” Matt Piner, research director
at Conlumino in London, said by phone.

Next shares rose as much as 3.9 percent to 4,310 pence at
10:29 a.m. in London trading. The stock has gained 15 percent
this year, boosting its market value to 6.9 billion pounds.

“The economy is flatlining and is likely to remain so for
the rest of the year,” Wolfson said. He expects another 18
months to two years before wage increases rise faster than
inflation, putting continued pressure on discretionary spending.

The retailer also warned weakness in the pound against the
U.S. dollar may result in price increases next year and
signalled it will be less enthusiastic about buying back shares
as the price rises.

“The year ahead looks no less challenging, but the group
is well-prepared and has further opportunities for growth,”
Wolfson said in the statement.

Pricing Plans

Next Brand sales will rise between 1 percent and 4 percent
this fiscal year, the retailer forecast, while profit before
taxes may gain as much as 7 percent. Next probably won’t
increase retail prices this year as a result of the pound’s
decline against the U.S. dollar, but it might in 2014.

“The recent sharp fall in the value of sterling will have
very little impact on this year’s pricing as we have bought
forward most of our foreign currency requirement for the current
year,” the company said. “If the pound remains at its current
rate of exchange against the dollar, we would expect our prices
to rise in 2014.”